Production Budget Problem

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PROBLEM 1 - Production Budget - Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company's products. To keep production and sales moving smoothly, the company has the following inventory requirements: a. The finished goods inventory on hand at the end of each month must equal 2,000 units of Supermix plus 25\% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 12,750 units. b. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows. Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October. 2. Examine the Production Budget that you prepared in (1) above. Why will the company produce more units than it sells in July and August, and fewer units than it sells in Septernber and October